During the past three years of low oil prices, worldwide investment in oil and gas was insufficient to meet future demand, Hess CEO John Hess told a CERAWeek 2018 audience of industry leaders, government officials and policymakers March 12 in Houston.
“Lack of investment is going to start forcing production declines and plateaus at a time when the world needs more supply,” he said. Hess cited industry estimates that $540 billion is needed annually to meet demand growth, while during the past three years the actual investment has ranged between $380 and $420 billion annually.
Hess participated in the “Investing in a Changing Energy Future” plenary led by Roger Diwan, VP, Financial Services, IHS Markit. The plenary included Samir Assaf, Chief Executive, Global Banking & Markets, HSBC; Musabbeh Al Kaabi, CEO, Petroleum & Petrochemicals, Mubadala Investment Company and Hital Meswani, Executive Director of Reliance Industries.
Hess outlined three areas where the impact of investment was evident: shale, offshore deep water and capital markets.
In the shale markets, dominated by U.S. independent operators, financial markets responded best when operators demonstrated strong financial discipline – using innovative and technological means to dramatically lower costs, Hess said.
Outside of shale, investments for about 90 percent of the world’s supply are down about 60 percent, he said. “Global exploration, which used to be $100 billion a year in 2014, is now $40 billion. You’re not getting new resources to add to the base and that will have a long-term impact.”
In the investment markets, Hess said, “the sentiment has changed quite a bit in the last year. The focus has gone from production growth to a focus on financial returns. Last year it was ‘drill, baby, drill.’ This year it’s ‘show me the money.’
“There’s no interest among investors to get more exposure to energy when they can invest in tech and some of the other areas of the economy,” Hess said. “So we have to improve our returns and that is putting a discipline on the industry that I think is healthy.”
To illustrate the company’s recognition that it must continue to return some capital to shareholders now, Mr. Hess pointed to the company’s diverse and balanced portfolio of shale and offshore assets and he highlighted Hess’ investment in Guyana where development costs are low.
“We’re in a long term business and too many people think short term. So you have to have the balance right. And that’s one of the reasons we have short cycle in the Bakken to go along with long cycle in Guyana.
“You have to have balance,” Hess said, “and the courage to invest in the long term and keep your eye on the ball.”